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PITAGORA
Revisione
Corso Matteotti, 21 - 10121 Torino
Tel. +39 011 51.78.602 ra. - Fax+39 011 51.89.491
Email: pitagorarev@pitagora.org
Via Pagano, 56 -20145 Milano
Tel. +39 02 439.11.617 - Fax +39 02 439.16.332
Email: pitagorarev@pitagora.org
To the Board of Directors and Stockholders of
Multigioco S.r.l.
Grottaferrata, Italy
We have reviewed the accompanying balance sheets of Multigioco Srl., as of June
30, 2014 and the related statements of operations, changes in equity,
comprehensive income and cash flows for the six months ended June 30, 2014 and
2013. These financial statements are the responsibility of the Multigioco's
management.
We conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and [and]
making inquiries of persons responsible for financial and accounting matters.
It is substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the
objective which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we don't express such and opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with standards of the Public Company
Oversight Board (United States), the balance sheet of the Multigioco S.r.l. as
of December 31, 2013 and the related statements of operations, changes in
equity, comprehensive income and cash flows for the year then ended (not
presented herein); and in our report dated August 1, 2014 we expressed an
unqualified opinion on those financial statements. In our opinion, the
information set forth in the balance sheet as of December 31, 2013 is fairly
stated, in all material respects, in relation to the balance sheet from which
it has been derived.
Pitagora Revisione S.r.1.
Turin, Italy
August 8, 2014
/s/ Roberto Seymandi
Roberto Seymandi
Partner
Member of JEFFREYS HENRY INTERNATIONAL
PITAGORA REVISIONE S.r.l - Societa di Revisiori Contabili
Sede Legale: 10121 Torino - C.so Matteotti, 21
Cap. Soc. EUR 30.000.00 i.v. P.I. 07786350012 Reg. Imp. Torino n. 05235621009
The following represents the Interim financial statements of Multigioco Srl for
the six months ended June 30, 2014 and the year ended December 31, 2013.
MULTIGIOCO S.R.L.
BALANCE SHEETS
June 30, December 31,
2014 2013
Unaudited Audited
------------ ------------
EUR EUR
Assets
Current assets:
Cash and cash equivalents 5,979 -
Gaming account debits 257,368 216,493
AAMS tax credit - 274
Short term investments - -
Other current assets 10,416 14,521
Total current assets 273,763 231,288
------------ ------------
Property, plant and equipment 17,284 14,881
Intangible assets 265,416 273,218
Investments 350,000 350,000
------------ ------------
Total assets 906,462 869,387
============ ============
Liabilities and stockholders' equity
Current liabilities:
Bank overdrafts - 1,164
Accounts payable and accrued liabilities 313,007 285,608
Short term portion of debt 113,957 133,447
Gaming account credits 308,926 282,357
Taxes payable 79,327 108,044
Advances from stockholders 39,428 37,877
Other current liabilities 201,635 19,263
Total current liabilities 1,056,280 867,761
------------ ------------
Long term loans and capital leases - 72,742
Total liabilities 1,056,280 940,504
============ ============
Stockholders' equity
Common stocks 10,000 10,000
Additional paid in capital 274,718 274,718
Accumulated deficit (434,535) (355,835)
------------ ------------
Total stockholders' equity (149,817) (71,117)
------------ ------------
Total liabilities and stockholders' equity 906,462 869,387
============ ============
(See notes to financial statements)
F-1
MULTIGIOCO S.R.L.
STATEMENTS OF OPERATIONS
June 30, June 30,
2014 2013
Unaudited Unaudited
------------ ------------
EUR EUR
Revenue
Net gaming revenue 1,878,902 2,119,345
Rebate of bank and credit card fees 7,829 7,992
Other income - -
Gross revenue 1,886,731 2,127,337
------------ ------------
Expenses
Direct operating costs 1,568,917 1,803,080
Selling, general and administrative costs 380,194 339,386
Amortization and depreciation 20,683 20,779
Total expenses 1,969,794 2,163,245
------------ ------------
Operating income / (loss) (83,063) (35,908)
============ ============
Other income or expenses
Interest expenses - (8,021)
Interest income - 533
Other income 573 4,342
Gains on bond investments 3,790 10,909
Loss on investments - -
Income / (loss) from operations, before income taxes (78,700) (28,145)
------------ ------------
Income taxes - -
Net income / (loss) from operations (78,700) (28,145)
============ ============
Other comprehensive income
Foreign currency translation differences - -
Total comprehensive income for the period (78,700) (28,145)
Gain / (loss) per share of common stock
Gain / (loss) from operations (39,350) (14,072)
============ ============
Weighted average shares outstanding common stock
Basic and diluted 2 2
============ ============
(See notes to financial statements)
F-2
MULTIGIOCO S.R.L.
STATEMENTS OF CASH FLOWS
June 30, June 30,
2014 2013
Unaudited Unaudited
------------ ------------
EUR EUR
Cash flows from operating activities
Net operating income (78,700) (28,145)
Add: non cash items
Amortization 20,683 20,779
------------ ------------
(58,017) (7,366)
Changes in operating assets and liabilities
Accounts payable 27,400 272,495
Prepaid expenses (AAMS tax) 274 13,609
Gaming account debits (40,874) (164,302)
Gaming account credits 26,569 (221,792)
Other current liabilities 134,164 (27,020)
Other receivable 4,105 8,076
Net cash provided by (used in) operating activities 93,619 (126,301)
------------ ------------
Cash flows from investing activities
Acquisition of property and equipment (15,284) (21,137)
Short term assets - 6,900
Net cash (used) in investing activities (15,284) (14,237)
------------ ------------
Cash flows from financing activities
Cash from bank overdraft (1,164) 314,551
Proceeds from long-term debt (72,742) (70,406)
Advances from (to) stockholders 1,550 (63,090)
Net cash provided by (used) in financing activities (72,356) 181,055
------------ ------------
Net (decrease) in cash and cash equivalents 5,979 40,517
Cash and cash equivalents at beginning of the period - 24,937
------------ ------------
Cash and cash equivalents at end of the period 5,979 65,454
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the years for:
Interest - -
============ ============
Income taxes - -
============ ============
(See notes to financial statements)
F-3
MULTIGIOCO S.R.L.
Notes to the Financial Statements
As of June 30, 2014 and 2013
(In euro, unless otherwise indicated)
Note 1 - Organization and Business
Multigioco Srl ("Multigioco" or the "Company") was organized under the laws of
the Republic of Italy on November 4, 2010. It was previously a division of
Newgioco Srl (a company incorporated in Italy). Operations are carried out under
gaming licences obtained from the Amministrazione Autonoma Monopoli di Stato
("AAMS") on July 4, 2012 and its subsidiary companies, and mainly consist of
online wagering as well as gaming in a number of land based shops and parlors
situated throughout Italy. For the year ended December 31, 2013, the Company had
over 750 shops under its licence.
The Company has no subsidiaries.
On December 31, 2013, the Company has 2 common shares issued and outstanding.
Note 2 - Summary of Significant Accounting Policies
Basis of presentation
The accompanying financial statements of Multigioco Srl have been prepared in
accordance with accounting principles generally accepted in the United States of
America ("US GAAP") and are expressed in euro which is the functional currency
of the Company.
The Company's fiscal year end is December 31.
Liquidity
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern, which contemplates realization of assets and
the satisfaction of liabilities in the normal course of business.
The Company's net gaming revenues, when expressed in euro, decreased by 11.3%
for the period ended June 30, 2014 from the year ended June 30, 2013. This
resulted in net loss of (EUR 78,700).
There are no assurances that management will be successful in achieving
sufficient cash flows to fund the Company's working capital needs, or whether
the Company will be able to refinance or renegotiate its obligations when they
become due or raise additional capital through future debt or equity. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. No adjustments have been made to the carrying value of assets or
liabilities as a result of this uncertainty.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Critical estimates include the assumptions
used in calculating share-based compensation expense, the useful lives of fixed
assets, the fair value of financial instruments, calculation of penalties and
interest on past due obligations, and the calculation of tax provision and the
F-4
Note 2 - Summary of Significant Accounting Policies (Continued)
valuation allowance for deferred tax assets. Actual results could differ from
those estimates.
Cash and equivalents
The Company considers all highly liquid debt instruments with maturities of
three months or less at the time acquired to be cash equivalents. Cash
equivalents represent short-term investments consisting of investment-grade
corporate and government obligations, carried at cost, which approximates market
value. The Company had cash or cash equivalents of EUR 5,979 on June 30, 2014
and EUR 65,454 in cash equivalents on June 30, 2013.
Credit Risk
Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist principally of cash. The Company primarily places its
cash with high-credit quality financial institutions. The Company's cash
deposits, of up to EUR 350,000 as at June 30, 2014 are insured by the Italian
Government. From time-to-time the Company has deposits in excess of the insured
amounts.
Accounts receivable & Allowance for doubtful
Accounts receivable represents trade obligations from customers that are subject
to normal trade collection terms, without discounts. The Company periodically
evaluates the collectability of its accounts receivable and considers the need
to record or adjust an allowance for doubtful accounts based upon historical
collection experience and specific customer information. Actual amounts could
vary from the recorded estimates. The Company has determined that no allowance
for doubtful accounts is needed for the accounts receivable balances as of
June 30, 2014 and June 30, 2013, those being EUR 10,416 and EUR 11,200
respectively. The Company does not require collateral to support customer
receivables.
Property, plant and equipment
Property, plant and equipment are stated at acquisition cost less accumulated
depreciation and adjustments for impairment losses.
Expenditures are capitalized only when they increase the future economic
benefits embodied in an item of property, plant and equipment. All other
expenditures are recognized as expenses in the statement of income as incurred.
Amortization is charged on a straight-line basis over the estimated remaining
useful lives of the individual assets. Amortization commences from the time an
asset is put into operation. The range of the estimated useful lives is as
follows:
Incorporation costs 20.00% per year
Office equipment 20.00% per year
Office furniture 12.00% per year
Signs and displays 20.00% per year
Intangible Assets
Intangible assets are made up of licences and rights (i.e. AAMS Licences) and
incorporation costs, and amortized over a useful life of 10 years. We evaluate
Intangible Assets for impairment on an annual basis, and do so during the last
F-5
Note 2 - Summary of Significant Accounting Policies (Continued)
month of each year using balances as of the end of December and at an interim
date if indications of impairment exist. Intangible Asset impairment is
determined by comparing the fair value of the asset to its carrying amount with
an impairment being recognized only where the fair value is less than carrying
value.
We perform the allocation based on our knowledge of the reporting unit, the
market in which they operate, and our overall knowledge of the gaming industry.
Long-Lived Assets
We evaluate the carrying value of our long-lived assets for impairment by
comparing the expected undiscounted future cash flows of the assets to the net
book value of the assets when events or circumstances indicate that the carrying
amount of a long-lived asset may not be recoverable. If the expected
undiscounted future cash flows are less than the net book value of the assets,
the excess of the net book value over the estimated fair value will be charged
to earnings.
Fair value is based upon discounted cash flows of the assets at a rate deemed
reasonable for the type of asset and prevailing market conditions, appraisals,
and, if appropriate, current estimated net sales proceeds from pending offers.
We evaluate the carrying value of our long-lived assets based on our plans, at
the time, for such assets and such qualitative factors as future development in
the surrounding area and status of expected local competition. If impairment is
indicated, the asset is written down to its estimated fair value. There were no
such impairments for the years ended June 30, 2014 and 2013.
Fair Value of Financial Instruments
At June 30, 2014 and 2013, the carrying value of the Company's financial
instruments such as prepaid expenses and payables approximated their fair
values based on the short-term maturities of these instruments. The carrying
value of other long-term liabilities approximated their fair values because the
underlying interest rates approximate market rates at the balance sheet dates.
Financial Accounting Standard Board ("FASB") ASC Topic 820 established a
hierarchical disclosure framework associated with the level of pricing
observability utilized in measuring fair value. This framework defined three
levels of inputs to the fair value measurement process and requires that each
fair value measurement be assigned to a level corresponding to the lowest level
input that is significant to the fair value measurement in its entirety. The
three broad levels of inputs defined by FASB ASC Topic 820 hierarchy are as
follows:
Level 1 - quoted prices (unadjusted) in active markets for identical assets or
liabilities that the reporting entity has the ability to access at the
measurement date;
Level 2 - inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly or indirectly.
If the asset or liability has a specified (contractual) term, a
Level 2 input must be observable for substantially the full term of
the asset or liability; and
F-6
Note 2 - Summary of Significant Accounting Policies (Continued)
Level 3 - unobservable inputs for the asset or liability. These unobservable
inputs reflect the entity's own assumptions about the assumptions that
market participants would use in pricing the asset or liability and
are developed based on the best information available in the
circumstances (which might include the reporting entity's own data).
The Company's financial assets reported at fair value in the accompanying
balance sheets, as of June 30, 2014 and December 31, 2013 were immaterial.
Investment in equity securities and available-for-sale securities
The Company's investments in equity securities, which are classified as
available-for-sale, are carried at fair value for publically traded investments
or historical cost basis for privately held investments. Unrealized gains and
losses, net of tax, are reported in other comprehensive income. Gains and losses
are reported in the financial statements of operations when realized, determined
based on the disposition of specifically identified investments, using the
first-in, first-out method.
Investments identified by the Company as being potentially impaired are subject
to further analysis to determine if the impairment is other than temporary.
Other than temporary declines in market value from original cost are charged to
investment and other income, net, in the period in which the loss occurs. In
determining whether investment holdings are other than temporarily impaired, the
Company considers the nature, cause, severity and duration of the impairment.
Leasing
All lease agreements of the Company as lessees are accounted for as operating
leases.
Advances from stockholders
Advances from stockholders to the Group are all non-interest bearing. Italian
law provides that the advances from stockholders to a corporation ("Srl") are
not preferred and their repayment is subordinated to other categories of debt.
As a result all advances from stockholders are classified as current
liabilities.
Revenue Recognition
Revenues from Sports Betting; Casino, Cash and Skill Games; Slots, Lotteries,
Bingo and Horse Race wagers represent the gross pay-ins from customers less
gaming taxes and payouts to customers. Revenues are recorded when cash is
received net of payouts and AAMS taxes from wagers by customers.
Income Taxes
The Company records a tax provision for the anticipated tax consequences of its
reported results of operations. The provision for income taxes is computed using
the asset and liability method, under which deferred tax assets and liabilities
are recognized for the expected future tax consequences of temporary differences
between the financial reporting and tax bases of assets and liabilities, and for
operating losses and income tax credit carry forwards. Deferred tax assets and
liabilities are measured using the currently enacted tax rates that apply to
taxable income in effect for the years in which those tax assets are expected to
be realized or settled. The Company records a valuation allowance to reduce
deferred tax assets to the amount that is more likely than not to be realized.
F-7
Note 2 - Summary of Significant Accounting Policies (Continued)
As of June 30, 2014 and 2013, the earnings of the Company have yielded
cumulative losses
The Company has adopted ASC Topic 740, which clarifies the accounting for
uncertainty in income taxes recognized in an enterprise's financial statements.
ASC Topic 740 prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return, and also provides guidance on
derecognition of tax benefits, classification on the balance sheet, interest and
penalties, accounting in interim periods, disclosure and transition. The Company
has determined that the adoption did not result in the recognition of any
liability for unrecognized tax benefits and that there are no unrecognized tax
benefits that would, if recognized, affect the Company's effective tax rate.
Based on the Company's review of its tax positions as of June 30, 2014 and 2013,
no uncertain tax positions have been identified.
The Company has elected to include interest and penalties related to uncertain
tax positions, if determined, as a component of income tax expense. To date, no
penalties or interest has been accrued.
In Italy, tax years beginning 2009 forward are open and subject to examination.
The Company is not currently under examination and it has not been notified of a
pending examination
Stockholder's equity
On June 30, 2014 the Company had 2 common shares issued and outstanding,
that being 1 (one) common share representing a 34% ownership percentage held by
Doriana Gianfelici, the Company's CFO (an Italian citizen), and 1 (one) common
share representing a 66% ownership percentage held by Newgioco Srl, a
corporation organized under the laws of Italy, which is owned 50% by Beniamino
Gianfelici (an Italian citizen), the Company's President, and 50% by Laura
Tabacco (an Italian citizen). In accordance with Italian law, the shares are
registered with the Register of Companies at the Italian Chamber of Commerce.
Promotion, Marketing, and Advertising Costs
The costs of promotion, marketing, and advertising are charged to expense as
incurred.
Net Income (Loss) per Share
Basic net income (loss) per share is calculated based on the net income (loss)
attributable to common shareholders divided by the weighted average number of
shares outstanding for the period excluding any dilutive effects of options,
warrants, unvested share awards and convertible securities. Diluted net income
(loss) per common share assumes the conversion of all dilutive securities using
the if-converted method, and assumes the exercise or vesting of other dilutive
securities, such as options, warrants and restricted stock using the treasury
stock method. For the periods ended June 30, 2014 and 2013 the Company did not
have dilutive securities.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources, including foreign currency translation adjustments and
unrealized gains and losses on marketable securities.
F-8
Note 2 - Summary of Significant Accounting Policies (Continued)
Recently Issued Accounting Pronouncements Not Yet Adopted
We have reviewed the FASB issued Accounting Standards Update ("ASU") accounting
pronouncements and interpretations thereof that have effectiveness dates during
the periods reported and in future periods. The Company has carefully considered
the new pronouncements that alter previous generally accepted accounting
principles and does not believe that any new or modified principles will have a
material impact on the corporation's reported financial position or operations
in the near term. The applicability of any standard is subject to the formal
review of our financial management and certain standards are under
consideration. Reference is made to these recent accounting pronouncements as if
they are set forth therein in their entirety.
Note 3 - Investments
Investments are made up of the following amounts:
June 30, June 30,
2014 2013
------------ ------------
EUR EUR
Secured deposits 320,000 320,000
Investment in Veneto Banca 30,000 -
------------ ------------
Total investments 350,000 320,000
------------ ------------
The secured deposits are held with the Veneto Banca Societa Cooperativa Per
Azioni and are made up as follows:
June 30, June 30,
2014 2013
------------ ------------
EUR EUR
Secured Deposits:
Certificate IT0004716202 200,000 200,000
Certificate IT0004699994 120,000 120,000
------------ ------------
Total Secured Deposits 320,000 320,000
------------ ------------
Note 4 - Property, plant and equipment and Intangible Assets
The Company's property, plant, and equipment and intangible assets are comprised
of the following items:
Property, Plant and Equipment:
June 30, June 30,
2014 2013
------------ ------------
EUR EUR
Asset
Office equipment 12,148 4,654
Office furniture 8,431 -
Signs and Displays 270 270
Less Accumulated Depreciation (3,565) (893)
------------ ------------
Total Equipment 17,284 4,031
------------ ------------
F-9
Intangible Assets:
June 30, June 30,
2014 2013
------------ ------------
EUR EUR
Asset Description
Incorporation costs 2,600 2,600
Licences and rights 350,000 350,000
Less Accumulated Depreciation (87,185) (48,297)
------------ ------------
Total Intangible Assets 265,415 304,303
------------ ------------
Note 5 - Bank overdrafts and Long term debt
The amount represents a bank loan held with Veneto Banca. The loan amount of
EUR 500,000.00 originated March, 2011 with a 49 monthly repayment term ending on
May, 2015. The interest rate on the loan is 5.041% plus euro Inter Bank Offered
Rate ("EURIBOR"). The loan balance outstanding as of June 30, 2014 is
EUR 113,956.76 and as at June 30, 2013 was EUR 243,571.63.
Debt repayments over the next five years are made up as follows:
June 30, June 30,
2014 2013
------------ ------------
EUR EUR
Short term portion of debt:
Due on June 30, 2014 - 129,615
Due on March 31, 2015 113,957 -
------------ ------------
Total Short term portion of debt 113,957 129,615
------------ ------------
June 30, June 30,
2014 2013
------------ ------------
EUR EUR
Long term portion of debt:
Due on March 31, 2015 - 113,957
------------ ------------
Total Long term portion of debt - 113,957
------------ ------------
F-10
Note 6 - Advances from stockholders
Advances from stockholders represent non-interest bearing loans that are due on
demand. The balances are made up as follows:
June 30, June 30,
2014 2013
------------ ------------
EUR EUR
Newgioco Srl - 109,058
Dorianna Gianfelici 39,428 185,237
------------ ------------
Total Advances from stockholders 39,428 294,295
------------ ------------
Note 7 - Contingencies and Commitments
There are no legal actions, lawsuits or disputes related to Company as of the
date of the financial statements.
Note 8 - Gaming Revenues
The Company derives revenues from the wagers on Sports Bets; Casino and Card
Games; Slots and other gaming entertainment. The Company is subject to licensing
requirements established by the Amministrazione Autonoma dei Monopoli di Stato
("AAMS"). The following table sets forth the breakdown of gaming revenues (total
wagers less customer payouts), for the period:
June 30, % June 30, %
2013 2012
------------------- -------------------
EUR EUR
Total Turnover 32,460,178 100.00% 38,488,279 100.00%
Less: Winnings/payouts 30,178,948 92.97% 35,975,932 93.47%
------------------- -------------------
Gross Gaming Revenues 2,281,231 7.03% 2,512,346 6.53%
Less: AAMS Gaming Taxes 402,329 1.24% 393,001 1.02%
------------------- -------------------
Net Gaming Revenues 1,878,902 5.79% 2,119,345 5.51%
------------------- -------------------
Note 9 - Income taxes
Tax losses carry forwards
Under Italian tax law the operating loss carry forwards available for offset
against future profits can be used indefinitely. Operating loss carry forwards
are only available for offset against national income tax, in the limit of 80%
of taxable annual income.
The Company's operating losses carried forward and available for offset against
future profits at June 30, 2014 is EUR 316,148 and as at June 30, 2013 is
EUR 379,108, respectively.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
F-11
Components of the Company's deferred tax asset are as follows as of June 30,
2014 and June 30, 2013:
June 30, June 30,
2014 2013
------------ ------------
EUR EUR
Deferred tax asset - net operating loss 86,941 104,255
Less: Valuation allowance (86,941) (104,255)
------------ ------------
Net deferred tax asset - -
------------ ------------
The Company periodically evaluates whether it is more likely than not that it
will generate sufficient taxable income to realize the deferred income tax
asset. The ultimate realization of this asset is dependent upon the generation
of future taxable income sufficient to offset the related deductions. At the
present time, management cannot presently determine when the Company will be
able to generate sufficient taxable income to realize the deferred tax asset;
accordingly, a valuation allowance has been established to offset the asset.
The reconciliation of income tax benefit attributable to continuing operations
computed at the Italian statutory tax rates to the income tax benefit recorded
is as follows:
June 30, June 30,
2014 2013
------------ ------------
EUR EUR
Income tax at Italian statutory - IRES (27.5%) - -
Increase in valuation allowance - -
------------ ------------
Income tax benefit - -
------------ ------------
F-12
